American Express 2010 Annual Report Download - page 35

CALCULATION OF NET INTEREST YIELD ON
CARDMEMBER LOANS
(a)
Years Ended December 31,
(Millions) 2010 2009
Calculation based on 2010 and 2009
GAAP information:
(b)
Net interest income $ 4,869 $ 3,124
Average loans (billions) $ 58.4 $ 34.8
Adjusted net interest income $ 5,629 $ 3,540
Adjusted average loans ( billions) $ 58.3 $ 34.9
Net interest income divided by average loans
(c)
8.3% 9.0%
Net interest yield on cardmember loans 9.7% 10.1%
Calculation based on 2010 and 2009
managed information:
(b)
Net interest income
(b)
$ 4,869 $ 5,977
Average loans (billions) $ 58.4 $ 63.8
Adjusted net interest income $ 5,629 $ 6,646
Adjusted average loans ( billions) $ 58.3 $ 63.9
Net interest yield on cardmember loans 9.7% 10.4%
(a) Beginning in the first quarter of 2010, the Company changed the manner in
which it allocates interest expense and capital to its reportable operating
segments. The change reflects modifications in allocation methodology that
the Company believes to more accurately reflect the funding and capital
characteristics of its segments. The change to interest allocation impacted
the consolidated net interest yield on cardmember loans. Accordingly, the
net interest yields for periods prior to the first quarter of 2010 have been
revised for this change.
(b) Refer to “Cardmember Loan Portfolio Presentation” on page 54 for
discussion of GAAP and non-GAAP presentation of the Company’s U.S.
loan portfolio.
(c) Refer to “Consolidated Results of Operations — Selected Statistical
Information”, footnote (g) on page 32.
The following discussions regarding Consolidated Results of
Operations and Consolidated Liquidity and Capital Resources
are presented on a basis consistent with GAAP unless
otherwise noted.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE
THREE YEARS ENDED DECEMBER 31, 2010
The Company’s 2010 consolidated income from continuing
operations increased $1.9 billion or 90 percent to $4.1 billion
and diluted EPS from continuing operations increased by $1.81
to $3.35. Consolidated income from continuing operations for
2009 decreased $734 million or 26 percent from 2008 and
diluted EPS from continuing operations for 2009 declined
$0.93 or 38 percent from 2008.
Consolidated net income for December 31, 2010, 2009 and 2008
was $4.1 billion, $2.1 billion and $2.7 billion, respectively. Net
income included losses from discontinued operations of nil,
$7 million and $172 million for 2010, 2009 and 2008, respectively.
The Company’s total revenues net of interest expense and total
expenses increased by approximately 13 percent and 20 percent,
respectively, while total provisions for losses decreased by
58 percent in 2010. Assuming no changes in foreign currency
exchange rates from 2009 to 2010, total revenues net of interest
expense and total expenses increased approximately 12 percent
and 19 percent, respectively, while provisions for losses decreased
approximately 59 percent in 2010
1
.
The Company’s total revenues net of interest expense,
provisions for losses and total expenses decreased by
approximately 14 percent, 8 percent and 14 percent,
respectively, in 2009. Assuming no changes in foreign
currency exchange rates from 2008 to 2009, total revenues
net of interest expense, provisions for losses and total
expenses decreased approximately 12 percent, 7 percent and
12 percent, respectively, in 2009
1
. Currency rate changes had a
minimal impact on the growth rates in 2008.
Results from continuing operations for 2010 included:
•A $127 million ($83 million after-tax) net charge for costs
related to the Company’s reengineering initiatives.
Results from continuing operations for 2009 included:
•A $180 million ($113 million after-tax) benefit in the third
quarter related to the accounting for a net investment in the
Company’s consolidated foreign subsidiaries. See also
Business Segment Results — Corporate & Other below for
further discussion;
•A $211 million ($135 million after-tax) gain in the second
quarter of 2009 on the sale of 50 percent of the Company’s
equity holdings of Industrial and Commercial Bank of China
(ICBC); and
•A $190 million ($125 million after-tax) net charge related to
the Company’s reengineering initiatives.
Results from continuing operations for 2008 included:
•A $600 million ($374 million after-tax) addition to
U.S. lending credit reserves reflecting a deterioration of
credit indicators in the second quarter of 2008;
•A $449 million ($291 million after-tax) net charge, primarily
reflecting the restructuring costs related to the Company’s
reengineering initiatives in the fourth quarter of 2008;
•A $220 million ($138 million after-tax) reduction to the fair
market value of the Company’s interest-only strip; and
•A $106 million ($66 million after-tax) charge in the fourth
quarter of 2008 to increase the Company’s Membership
Rewards liability, in connection with the Company’s
extension of its partnership arrangements with Delta.
1
These currency rate adjustments assume a constant exchange rate between
periods for purposes of currency translation into U.S. dollars (i.e., assumes the
foreign exchange rates used to determine results for the current year apply to the
corresponding year-earlier period against which such results are being compared).
Management believes that this presentation is helpful to investors by making it
easier to compare the Company’s performance from one period to another
without the variability caused by fluctuations in currency exchange rates.
33
AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW